Managing Network Relations in the Project Business Context - Social Capital Perspective

Abstract

No company can survive alone and instead of single companies competing, it is in fact networks of companies that compete with each other. Competitiveness can be enhanced, for example by lowering costs and ensuring the availability of essential network resources. Being part of a network requires collaboration and the capability to utilize business relations and resources. So far, studies on collaboration and managing relations have concentrated on long-term, continuous relations, with the focus on information and communication technology. The relational aspects of collaboration in the project context have not been thoroughly studied even though the competitiveness of a business network has been found to depend on its members’ ability to manage business relations.

The competitiveness of a project network and the role of relational competence within it are the focus of this study. This dissertation intends to increase the understanding of social capital enabled collaboration as a basis of network competitiveness in the project business context. To achieve this objective, the following three research questions are investigated: 1) how can relational competence be analyzed? 2) what is the importance of relationships? and 3) how can the business impacts of collaborative relationships be analyzed? The study includes both conceptual analysis and an empirical study based on interviews. The basic argument underlying this study is that the relational competence of network companies should be emphasized more when evaluating network competitiveness. The study complements the research by bringing social exchange theory to bear on supply chain integration analysis in the project context.

The objective of this study is to develop a classification typology based on relational aspects of collaboration to help in analyzing the competitiveness and operational ability of a project network. Three research questions are addressed in pursuit of the objective of the study, the aim being to clarify the sources of relational competence, the significance of network relations, and the business impacts of relationships.

In order to capture the essence of a classifying typology on the relational competence of network companies, a combination of grounded theory and case study approaches was used in the dynamic field of project business. Two shipyards and eight subcontractors in the Finnish maritime industry were chosen as the case companies.

The study provides both theoretical contributions and managerial implications. The main contribution of the study is that it clarifies the role of social capital on collaboration between project-based network companies. The study contributes to the evolving idea of utilizing social exchange theory as a complementary theory for theories of transaction cost economics and the resource based view in supply chain integration analysis. Social exchange theory adds to these above-mentioned ”traditional” supply chain management theories by widening the view from mere contracts, cost focus, and availability of resources towards relational competence, the ability to exploit resources and relations. The study extends the discussion on the relational aspects of collaboration, highlighting the context of a project business network. The study provides empirical evidence of building collaboration on relational aspects in the project business context also, offering a new perspective. The study also brings about a novel typology of project business relations based on relational aspects of collaboration. Based on this classification, four categories were identified to describe project network companies on the basis of their relational competence: 1) indifferent, 2) benefitting, 3) diversifying, and 4) committed partners.

In the case study, the network relations were found to be significant, even indispensable from the shipyard viewpoint. At the same time, shipyards are seeking to simplify the network structure by focusing on ever fewer turnkey suppliers, leading to consortiums or cooperative societies formed by subcontractors. For subcontractors, both the presence and the closeness of the customer as well as developing the business in collaboration are important. Avoiding a situation where subcontractors are “left alone” is one of the challenges of the future.

The empirical observations of this study indicate that all the aspects of social capital, not just mechanical information sharing, should be considered when evaluating the relational competence of a company. It was also found that companies with a higher level of relational competence experience higher business impacts and higher satisfaction with collaboration. The lesson for managers is that companies with good relational competence benefit more from collaboration. Improving relational competence by investing in the development of all social capital elements enables enhanced benefits from collaboration; a company will gain more from acting as a subcontractor for the shipyard.